Fed Governor Adriana Kugler to resign
Investing.com -- Moody’s Ratings has downgraded the long-term corporate family rating (CFR) and the probability of default rating (PDR) of ams-OSRAM AG to B3 from B2. The rating of the backed senior unsecured bonds issued by ams-OSRAM has also been downgraded to B3 from B2. The outlook for the company has been revised to stable from negative.
The downgrade comes as ams-OSRAM’s current and forecast credit metrics fail to align with its previous B2 ratings. This discrepancy is due to a delay in improvements compared to previous expectations. The company is also facing upcoming debt maturities, with a revolving credit facility (RCF) due in September 2026 and a convertible bond due in November 2027.
The slower improvement in operating results, coupled with the maturity of the relatively low-cost convertible bonds, could lead to a significant increase in interest expense. The company’s limited free cash flow (FCF) might not be sufficient to absorb the higher interest burden. The B3 rating reflects Moody’s expectation that the debt maturities will be addressed at least 12 months before their due date.
ams-OSRAM’s earnings improvement trajectory is slower than previously expected, with demand weakness in automotive and industrial end markets likely to continue through the first half of 2025. As a result, the company’s financial profile is expected to remain stretched through 2025. Moody’s adjusted Debt/EBITDA is projected at 6.6x in 2025, with Moody’s adjusted FCF/debt expected to be 1-2% in 2025 and weak interest coverage.
The company is working on a 1-year extension of the RCF due in September 2026. The B3 rating reflects Moody’s expectation that the RCF extension will be secured at least 12 months before its due date. The €800 million RCF due in September 2026 supports the potential exercise of the €585 million minority put option expected in the second half of 2025.
The next maturity the company faces is €760 million of convertible notes in November 2027. ams-OSRAM will need to address this maturity next year, potentially facing higher interest expenses if refinanced.
The company is looking into ways to deleverage the balance sheet, but due to uncertainties regarding the timing and potential disposal proceeds, this potential benefit is not included in the current forecast. For instance, the sale and leaseback of its Malaysian factory could potentially result in a 0.9x lower Moody’s adjusted gross leverage and approximately €40 million of annual savings on FCF due to lower lease payments and operational costs.
Moody’s forecasts 2025 revenues to be flat compared to €3.4 billion reported in 2024. Subsequent mid-single digit revenue growth is expected from 2026 onwards, and Moody’s adjusted EBITDA at €480 million in 2025, improving to around €620 million in 2026.
The stable outlook reflects Moody’s expectation that ams-OSRAM will see profitability improvements starting in the second half of 2025. The outlook also incorporates the expectation that the company will maintain adequate liquidity, including the anticipation that the RCF maturity will be extended at least 12 months before it becomes due.
Factors that could lead to an upgrade of the ratings include sustained improvement in underlying revenue and growing EBITDA, leading to an improvement in credit metrics, such as sustainably positive Moody’s adjusted FCF, Moody’s adjusted (EBITDA-capex)/ interest sustainably above 1.5x, Moody’s adjusted Debt/EBITDA well below 6.0x on a sustained basis and adequate liquidity.
Downward pressure on the ratings could develop if operating performance does not improve in line with expectations from the second half of 2025, or the company fails to show progressive recovery of credit metrics, such as Moody’s-adjusted FCF remaining negative, Moody’s adjusted (EBITDA-capex)/ Interest remaining below 1.0x or if liquidity weakens. The rating could also be downgraded if the company fails to refinance upcoming debt maturities at least one year before they are due.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.